Our Christmas gift to you: “Three Great Chart Patterns For Crypto Trading.” Today you’ll learn about three introductory chart patterns: the cup & handle, W-Pattern, and Triangles. *Obviously, please DYOR. Not financial advice.
- Chart Patterns: Their Efficacy and Limits
- 3 Chart Patterns
- No Two Moments Are the Same
Chart Patterns: They Can Be Confusing But It Still Pays To Know Them
There are many chart patterns and some of them are some variations of others. There is a lot of information on chart patterns and it can happen on all time frames. Also the efficacy of a particular chart pattern can change when the market condition changes.
If you have been in the market for a while, you would know that there are so many patterns and indicators that it can be mind-boggling. You can read books, take courses, and listen to others conjecturing about what they think is going to happen in the market based on a chart pattern.
But no one knows what’s exactly going to happen unless they have enough buying power to dictate or manipulate the majority of capital flow in a particular market at that particular moment.
I’m going to present you three chart patterns that work well in a bull market like the current crypto market.
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Pattern 1: Cup & Handle
This is among the most popular patterns and often one of the most talked-about patterns. It is characterized by a big rounding base followed by a smaller rounding base resembling a cup & a handle (picture a measuring cup)
This is popular among momentum traders because it can lead to an upside breakout. They would either anticipate a breakout to the upside or get in on a trade as soon as they determine that the price is in a breakout to the upside.
However, markets can often make false breakouts. Momentum buyers can sometimes find themselves buying at the top only to get flushed during a false breakout (aka “fakeout”)
It’s important to keep an eye on volume and momentum to anticipate whether the price action has a potential to breakout to the upside or not.
This is a very clean example of “Cup & Handle” and one that merits some serious attention. If this pattern plays out to the upside, this has the potential to shake up the crypto market dynamics as ETH is forming a multi-year cup & handle against BTC.
The momentum oscillator shows that the fast momentum (yellow) is in the bullish zone (upper half) and trading above the slow momentum (red). It is true that fast momentum is looking to cross below the slow momentum but the overall trend has been strong in favor of ETH.
Squeeze indicator shows a low-compression (black) with momentum rising shown by its histogram (cyan histogram: bullish & momentum rising)
Pattern 2: W Pattern (aka Double bottom but not always)
W pattern is also known as double bottom but I’d prefer the term “W Pattern” because it is more inclusive. Note that price doesn’t have to make a double bottom in order for this pattern to work.
This is 2-hour chart of BTC. As you can see a clean “W” pattern that formed between Dec 16th and Dec 22nd.
Price likes to retest the same level as a support and it finds more buyers to push it up. This works better in an overall bull market but it’s important to note that it can look simple in hindsight but it can be deceptive when it is forming.
It is especially true if a market doesn’t hold double bottom, flushes to the downside, then reverses to go up. The momentum oscillator suggests that there was a slight positive momentum divergence between price and momentum.
Pattern 3: Triangles
There are different variations of this patterns: ascending triangle, descending triangle, and symmetrcial triangle.
But they are all consolidation patterns. The longer a consolidation goes on, the tighter the price range becomes. This pattern eventually resolves itself by releasing its energy to the upside or to the downside.
Also, it can release its energy and break out before the consolidation reaches the right-most point in a triangle pattern.
This next example has two triangle consolidation patterns and both resulted in an upside breakout with the second one much bigger than the first one.
This took place shortly after the 2020 Covid Crash. Would it be fair to say that ETH won’t be trading around here again? The second one resulted in a monster breakout that needs no explanation.
One Last Thing
In closing, it’s important to acknowledge that no two moments are the same in the market. It’s like the often-quoted disclaimer in a trading course or a system that points out that past performance is not indicative of future results.
So patterns should be judiciously used with your trading plan and risk management rules in place.
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